Comparing these two reports and the market reaction, it is clear that the market is no longer interested in the size of investments in AI, but rather in the ability to maintain profits while these investments are made.

Meta: higher spending and pressure on profit

🔘Metaincreased operating expenses by 55%, and operating profit for the quarter fell by 8% because of this. Even if you exclude legal fees and layoff costs, costs still increased by 42%. Capital expenditures nearly doubled to $30 billion, accounting for half of the company’s total revenue. Free cash flow fell 91% to less than $800 million.

Microsoft: investment while preserving margins

🔘Microsoft spent even more – $35.8 billion in the quarter, but for it this represents only 40% of revenue. Operating expenses increased by 10%, so operating profit increased by 18%. The cloud segment’s gross margin for the fiscal year fell 4 points to 58%, but operating margin only lost about half a point as the company made savings in other areas.
CFO Amy Hood kept repeating the word “efficiency” and saying it needed to get more value out of its existing chip fleet.

How the market reacted to both reports

TheMarket reacted accordingly. Meta shares fell 10% in over-the-counter trading, while Microsoft shares rose 9%. At the same time, Azure is growing by 43% versus 82% in Google Cloud, although this did not stop investors from thanking Microsoft.